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Wall Street pared back opening gains as investors took stock of another steep jump in US unemployment claims and Goldman Sachs warned on the pace of the equity rally.
The S&P 500 was up 0.3 per cent by early afternoon in New York, having opened 0.6 per cent higher after figures showed an additional 5.2m first-time jobless claims last week. This was down from 6.6m the previous week, but still takes the cumulative total since the March lockdowns began to 22m.
Seema Shah, chief strategist at Principal Global Investors, said that while the rise was “astounding”, they were in line with expectations. This allowed US trading to get off to a positive start before investors turned more cautious.
“It’s clear that the worst is yet to come,” added Win Thin, a strategist at Brown Brothers Harriman.
The Dow Jones was flat at midday although the tech-heavy Nasdaq Composite edged up 1.6 per cent.
A slowdown in infection rates and sweeping monetary and fiscal intervention have seen global stocks bounce back after lockdowns sent them plummeting in February, with the S&P 500 up more than 25 per cent since its mid-March nadir. But analysts are wary about whether the recovery can be sustained.
“This rally in equity markets is probably too far too fast, and there are probably still downside risks from here,” said Peter Oppenheimer, chief global equity strategist at Goldman Sachs. “But we will see a strong recovery in the economy starting in the second half of this year and that will generate a reasonable recovery in risk assets.”
There were modest rises in Europe following signs that lockdown restrictions were easing in the region after Germany on Wednesday joined a list of countries that have announced plans to relax measures.
Both Frankfurt’s Xetra Dax and Paris’s CAC 40 rose 0.2 per cent, while the continent-wide Stoxx 600 gained 0.7 per cent.
Lee Hardman, currency analyst at MUFG, said the German announcement provided a “small chink of light” amid some otherwise bleak news. But he cautioned that the return to normality will take time. “Economic activity is unlikely to pick up more notably until later this year in the best-case scenario,” he said.
Concerns about debt levels in the Europe also linger. Eric Stein, a portfolio manager at Eaton Vance, said tensions in the region about debt and disagreement about the best way to deal with the impact of coronavirus could dent European assets.
“The breakdown premium is not yet priced in,” Mr Stein said.
A more pessimistic sentiment hung over the Asian trading day after the IMF warned that growth in the region would grind to a halt for the first time in six decades due to coronavirus. Japan’s benchmark Topix index fell 0.8 per cent and Hong Kong’s Hang Seng index dropped 0.6 per cent.
Strategists said investors were unlikely to find any sources for hope when China reports its first-quarter GDP figures on Friday, in what is expected to be the week’s most important economic reading.
The data “may not provide much optimism on a quick turnround in economic recovery, since external demand is now a new threat to the Chinese economy and domestic demand is recovering only gradually”, said Tai Hui, chief market strategist for Asia at JPMorgan Asset Management.
Brent crude was down 0.2 per cent to trade at $27.63 a barrel. The international oil benchmark has lost more than 10 per cent this week, with traders unconvinced by an Opec deal that promised the biggest cuts to production in history in the face of a collapse in crude demand.
